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What is the relationship between price and demand?
Why is it important for a firm to price at the point at which marginal revenue is equal to marginal cost?
Price affects demand.
Expensive lessens demand
It’s an inverse relationship between price and quantity.
Price /\ demand \/
Marginal Revenue is the Additional (negative) revenue reaped from lowering or increasing the product price by increments.
Marginal Cost – is the cost associated with producing an additional good, the marginal curve is U shaped, as more goods are being produced, many firms often come in contact with increasing returns to scale.
It is of most importance for a firm to price at the point at which marginal revenues equal marginal costs to break-even. After everything is covered by revenues, then we can take in profit.
Why should a firm consider fairness when pricing its goods?
Fairness comes into play once a firm wants to sell a product, it will determine at what point the product will be purchased. (is often looked as an important attribute to the offering) Price can also reflect the quality of our product, if its low price, it is perceived as ‘cheap’
Considerations that should be taken when it comes to pricing, The close substitute price, the past price, and the environment in which the purchase is being made.
How has the Internet enhanced opportunities for dynamic pricing strategies?
cost is associated with the changing price of a product. The internet incurs less of a cost, due to its ease, unlike in print.
2 ways that the internet has enhanced dynamic pricing. One being the decrease of menu costs, and interactivity buyers and sellers globally can interact in the negotiation of prices.
Why would a firm want to implement a price-discrimination strategy?
Where the company sells goods or services at two or more prices based on segment differentiation, internet allows to customize prices for certain customers. (by 3 get a discount)
What is the difference between static and dynamic markets?
Static – sellers se the price, and buyers must take it, everyone pays the same, usually used in retail, It can either be Price leader, Comparative pricing.
Dynamic aka fluid pricing, a huge contributor (the interent) made to price-strategy.
English Auction – ebay, price is low the goes up.
Dutch auction – Price is set high, then lowered.
First price sealed bid auction – amount of other bids are not known.
Reasons for Price discrimination -
This is the most type, it groups individuals into categories according to what they are willing to pay. Firms are able to increase demand for their products due to price being determined by the customer’s willingness.